"In 1990 7-year U.S. Treasuries yielded as much as 9.12 percent, and today they ytield around 1.2 percent," explains Jesse Slome, executive director of the American Association for Long-Term Care Insurance. "Individuals don't realize the importance of investment return and the direct impact it has on pricing for various insurance products, especially long-term care insurance http://www.aaltci.org."
According to the organization, between 40 and 60 percent of the cost of long term care insurance is based on the anticipated investment return. "The premiums people pay comprise about half of the formula with investment return making up the other half," Slome shares. "For every one percent decline in interest rates, an insurer needs about a 10-to-15 percent rate increase in what coverage will cost."
Premiums for long term care insurance have grown as the Federal Reserve has decreased interest rates with current rates about 30 to 50 percent higher than they were five years ago according to AALTCI's annual price index. "Insurers tend to invest the premiums paid by policyholders into instruments that are more stable and typically interest paying, versus more risky financial instruments like stocks," Slome notes. "The historic low interest rates are great for those buying a house but impact what people will pay for coverage."
As a result of the current environment, insurers have developed more affordable policy options. "Inflation rates are significantly lower, a positive result of the Fed's actions," Slome adds. "The older standard five percent inflation growth option has seen the greatest price increases and so more consumers are opting for more affordable options which have not been as impacted."
While cost remains a factor among those considering long term care insurance, Slome notes that many consumers can start with coverage costing about $100 a month. "One can still buy a considerable amount of protection if you take advantage of discounts and work with someone who takes into account you other retirement savings and assets," Slome concludes.
The organization predicts sales will continue to grow in 2013. Established in 1998 as a non-profit trade group, the Westlake Village, California-based American Association for Long Term Care Insurance advocates for the importance of planning for long term care and supports insurance and financial professionals who market LTC insurance. To learn more about long term care insurance costs http://www.aaltci.org/